I’m searching for the best cheap FTSE 100 stocks to buy on the dip. Here are two on my watchlist right now.
Anglo American
Mixed economic data from China continues to weigh on share prices across the mining sector. Take Anglo American (LSE:AAL), for instance. The diversified miner’s shares dropped again on Tuesday following disappointing Purchasing Managers’ Index (PMI) data from manufacturers.
The PMI reading dropped to a six-month low of 49.2 in July. As a reading under 50, it indicates economic contraction. Shrinking Chinese factory activity has obvious consequences for commodities demand.
Yet I believe these risks are baked into the low valuations of many mining stocks. Anglo American’s share price, for example, trades on a forward price-to-earnings (P/E) ratio of 10.5 times. This is well below the FTSE 100 average of around 14 times.
I’m expecting the mega miner to soar from current price levels once the global economy normalises. Demand for raw materials is tipped to surge as the next commodities supercycle gets under way.
Anglo American produces several metals for which demand is tipped to rocket over the next two decades, too. Its copper and nickel should sell in huge volumes as electric vehicle output soars. Infrastructure building is likely to supercharge demand for its iron ore and steelmaking coal. The list goes on.
Producing a wide range of commodities also helps to reduce the risk to investors. The impact of a sharp fall in copper prices, for instance, due to surging supply will have less impact on Anglo American’s bottom line than it would on a dedicated copper miner.
A 4% dividend yield sweetens the investment case for this cheap FTSE 100 share.
DS Smith
Packaging manufacturer DS Smith (LSE:SMDS) is another UK blue-chip share that offers excellent all round value for money.
The company trades on a forward P/E ratio of 10.3 times. Meanwhile, its corresponding dividend yield chimes in at 6%.
Like Anglo American, earnings here are highly sensitive to broader economic conditions. Volumes of its boxes and other cardboard products fell in the last financial year (to April 2023) as its end markets weakened.
Yet effective price rises have so far enabled DS Smith to continue growing revenues and profits. A continued focus on margin improvement could help it keep delivering solid shareholder returns, too. It hiked the full-year dividend 20% last year.
This is a share that already sits in my portfolio. And I plan to hold it for the long haul. I’m expecting demand for its packaging to rise strongly as e-commerce grows across the world.
The company’s wide wingspan covering Europe, North America, and Africa, gives it ample opportunity to grow earnings. Its robust balance sheet should allow it to continue growing its wingspan through further mergers and acquisitions, too. DS Smith’s net-debt-to-EBITDA ratio fell to just 1.3 times as of April.
